Broker Check

September 16, 1999

Individuals Would Be Big Winners in GOP Tax Bill

          But Clinton will likely veto the bill since it returns  tax  monies to  taxpayers.

          Only in Washington would a 1% cut in income tax rates be called excessive. The 1% cut in rates applies to all tax brackets.  The lowest bracket  (15%)  would be reduced  to  14 1/2 %  in “03.   Starting in ‘05  other  tax  rates  including  minimum tax will be reduced by 1%.

          The top rate on capital gains would fall by 2 points to  18%,  8%  for  gains that are taxed in the lowest bracket. Effective date would be 1/1/99.

          Tax basis for assets could be adjusted for inflation after ‘99.

          Standard deduction for married filing joint would be  raised  starting  in  ‘01 until it is twice the amount for singles in ‘05. After that, the  14%  tax  bracket  for marrieds would be broadened until it is double  the size  of  the  14%  bracket for singles after ‘07.

          Full repeal of estate and gift taxes.  This would be accomplished by phasing in rate reductions over a nine year period ending in ‘09. (There goes my estate tax planning practice!)

          Higher contribution limits for IRAs,  Roth  IRAs,  401ks  and  other  plans. Annual contribution limits for  IRAs  and  Roths  would increase  over  time  from $2,000 to $5,000 by ‘06. Maximum that could  be  put  into  401(k)  and  403(b) plans would gradually rise in $1,000 increments from $10,000 to $15,000 by ‘05. Limit on annual payins to profit sharing plans would rise to $40,000 from $30,000.

          The $100,000 income limitation on converting IRAs to Roths would double in ‘03 to $200,000 for marrrieds.

          The easing in  health insurance  would  be good news  to  many.  Self  employeds  would  be  able  to  deduct  100%  of  medical premiums instead of having to wait until ‘03 to take full deduction.

          Education IRAs would be expanded to cover pre-college expenses and  the $500 contribution cap rises  to  $2,000 in  ‘01.  Distributions  from  state  prepaid tuition plans would be  tax  free as well  as  similar  payouts  from state  sponsored college savings programs.

          More student loan interest would be deductible.

          Middle income taxpayers would receive some AMT relief. The AMT would not affect tuition and child credits in ‘99 and it would gradually be repealed over  a four year period starting in ‘05. 

          The dependent care and adoption credits would both rise. 

          There are some benefits for  businesses  too,  with  the current  equipment expense limitation jumping from $19,000 to $30,000 in “00.

Turbo Tax and MacInTax Goofs

          A program error by Intuit, maker of Turbo Tax and MacInTax,  the  best-selling  tax   preparation   programs  caused   a  problem   to   people  who  filed electronically before April 1, Because of this slip up, the IRS did not get a form it was supposed to receive and therefore, some taxpayers received notices proposing additional tax, penalties  and  interest. Affected were  some  electronic  filers  who received dependent care benefits from their employer. The solution to the problem: to print out a copy of your Form 2441 and send it to the IRS  with  your  response to its Notice.

Value Overtakes Growth

          Growth stocks  have  outperformed  value  stocks  for  the  last five  years (1994-1998) and continued to hold steady above value during the first  quarter of 1999. Value stocks began a run  in  March  and  have  continued  to  outperform growth stocks since then. This rotation should serve as  a  reminder  that  a  well-diversified portfolio should include both value and growth investments.

New Social Security Statements

          Beginning  October 1,  1999  all  workers  age 25  and  older  who  aren’t receiving Social Security benefits will receive an annual statement from  the  Social Security Administration three months before their birth month. This new statement which is required under the Omnibus Reconciliation Act of 1989,  will  replace the personal earnings and benefits statement, a similar notice that  is  now  available  to workers by request. According to the SSA the new format is shorter and easier  to read.

          I suggest that you read the statements carefully and use them in planning  for your financial future. You should also check the earnings record for accuracy since your benefit projections are based upon earnings. 

You’re Lucky

          Recently, in the New  York  Times,  there  was an  article  on  how  some vendors have started to accept stock options  as part of their fee for dealing  with high growth Internet companies. The article dwelt at  length  on  one  owner of  a consulting firm. It was discussed how  he  finds  the  compensation  package  both exciting and unnerving, as he struggles not to spend the money he  does  not  have yet.

          What was of most interest to me was that since his decision  to  accept  the options instead of a higher fee, he and his wife have retained the following:

    1) a financial advisor

    2) a tax lawyer

    3) an accountant specializing in stock transactions, and

    4) an initial offering consultant who helps devise long-term investment


          You are lucky!   In retaining me, you have already covered the preceding four!

          If you have any questions about these or any other tax or financial matters, please call me.